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Saturday, April 21, 2012

RIL Profit Dipped so is its Control

Loser or a strategist?

Reliance Industries Ltd , India's largest, and arguably, most powerful enterprise has disappointed its investors as was expected one more quarter. It posted a drop of 21.2% in Net Profit to Rs.4,236 crore for the quarter ended 31 March from a year ago. RIL attributed the drop in profit, despite a 16.7% increase in revenue to Rs.87,833 crore, to soaring crude prices, and higher power and fuel expenses.

The company announced a final dividend of 85% of the face value for fiscal 2012, to bring smile on the face of worrying stakeholders. The investors are more worried for RIL as it is losing its grip on the national policy makers and is unable to tame the down-slide of business. With the loss of patrons in Petroleum ministry position of RIL has become like ill managed companies of licence raj exposed to open competition.

Sudarshan RIL Man

Nothing is happening favorable to Mukesh Ambani in last one year. The man who was believed to dictate the policy makers is getting cold shoulder from "Shastri Bhavan" where each and every body was eager to lay red carpet to him and his fellow employees until last year.

It was said to be another office for RIL bosses and they were free to visit any moment. But P.M.S. Prasad, head of RIL’s oil and gas business was denied a meeting by Petroleum Secretary G.C. Chaturvedi in December 2011. Such an embarrassment now is not an exception under the captaincy of Jaipal Reddy. It is believed that Mukesh complained to Prime Minister about the biased stance of this Andhra Leader in a personal meeting. But congress leadership can not annoy any AP leader till Jagan’s position is strong there.

In the last decade there have been two Petroleum ministers from Mumbai, where the HQ of RIL is situated. First, it was Ram Naik in NDA government and then Murli Deora from 2006 till 2011. Deora was once a mentor for Ambani family. During his period Shastri Bhavan was used for two out of court settlements favouring RIL. One was against GAIL.In the second case ADAG was pushed to the wall. The ministry withdrew gas marketing rights from operators, aiding RIL in case against RNRL.

Ram Naik, hero of Mumbai masses gave en-mass boost to Ambani by allowing private players to set up retail stations and sell petrol. But RIL could not compete with subsidised petro products of PSU OMCs. During his tenure RIL won bid for a 26% stake in IPCL against Indian Oil. Later. in April 2007, during UPA-I tenure, IPCL was fully taken over by the Reliance Group.

Things changed last year when Manmohan Singh gave charge of Shastri Bhavan to Andhra Leader Jaipal Reddy following the failure of RIL in maintaining targeted production from KG basin and media reports on irregularities to favour RIL were making frequent headlines.

After taking the charge Reddy caught the bull by horns, he gradually sidelined all loyalist bureaucrats. He cleaned up all levels of employees and did not spare even the petroleum secretary S. Sundareshan. Sundareshan headed a panel that accepted RIL's claim over the entire KG-D6 block. Now, the lower output of gas compared to the projections is flaring up the relations between RIL and the ministry.

Joint secretary Apoorva Chandra in May 2011 wrote a controversial note to allow RIL to cut gas supply from the D6 block in KG basin, to non-core industries. In August he was handed over transfer letter by the ministry. After three months more than a dozen officers were shunted out.

D6 block is estimated to hold gas reserves: around 11.3 trillion cubic feet. As per a field development plan RIL was to produce 80 mmscmd by April 2012, from 31 wells. However, the actual production is less than half, 34.5 mmscmd from 14 functional wells.

(1 mmscmd = 35,000 mmBtu = $1,47,000 = App 7,65 million INR)

RIL blames it to flood and three dry wells. Angry Jaipal wants to impose a penalty of Rs 9,000 crore on the company for achieving lower production. After all its in Andhra Pradesh where most of Gas based power plants were planned following this discovery.

Lanco is the biggest loser because of lower gas production by RIL. What is wrong, if Ram Naik from Mumbai can gift IPCL to Ambani, Reddy can pressurize RIL to produce extra gas for Lanco to revive? Directorate General of Hydrocarbons (DGH), deemed regulator of the sector, wants that RIL must dig an additional nine wells to ramp up production.

There is a group who believes that lower production is a strategy of RIL group to put pressure on the government to revise selling price of Gas which are fixed at $4.2 per mmBtu. Till 2014 the prices will remain unchanged, so will the output of KG basin. Till RIL wants to spend time in exploration of Mahanadi basin. Once the rates are hiked in 2014 the production and profitability of RIL both will shoot up.